Shown Wai Investment Company Ltd v. Hui Yip Wing David

HCA 2959/2015

[2024] HKCFI 2339

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 2959 OF 2015

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D E C I S I O N

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Introduction

1.On 28 June 2024, I handed down the judgment after trial in these proceedings (“Judgment”), in which I dismissed SW’s claim against Hui and made, inter alia, costs orders nisi concerning the Amendment Application and these proceedings. On 12 July 2024, Hui took out a summons (“Hui’s Summons”) for an order that the aforesaid costs orders nisi be varied and there be indemnity costs against SW in respect of the Amendment Application and the entirety of these proceedings. As to the costs of the entirety of these proceedings, Hui also made an alternative application that indemnity costs be ordered against SW as from 12 May 2020 onwards, or as from 17 June 2023 onwards. The basis of this alternative application is the two settlement offers made by Hui to SW on 27 April 2020 and 14 June 2023 respectively.

2.In this application, the parties are represented by counsel same as those representing them in the trial. I have directed that this application be determined on paper without an oral hearing. I have duly considered the evidence filed by the parties concerning Hui’s Summons and the parties’ respective written submissions. For ease of reference, the abbreviations used in the Judgment are adopted herein.

The principles

3.In considering the application made by Hui, everything must be based upon my rulings made and the reasons given in the Judgment. This application is not an opportunity for the parties to reargue anything which has already been decided in the Judgment. The parties cannot go behind the Judgment.[1]

4.The principles concerning indemnity costs are trite:[2]

(1)  The court has a broad discretion to determine the taxation basis. In order to obtain an order for costs on an indemnity basis, it is necessary to have some “special or unusual feature” in the case.

(2)  Indemnity costs are not confined to cases where the paying party’s conduct lacks moral probity or deserves moral condemnation for which the court wishes to express disapproval. Conduct which falls short of that can be so unreasonable as to justify an order for indemnity costs. But such conduct would need to be unreasonable to a high degree. Unreasonable in this context does not mean merely wrong or misguided in hindsight.

(3)  Usually, merely pursuing a weak claim would not justify indemnity costs. On the other hand, to maintain a claim that one knows, or ought to know, is doomed to fail on the facts and on the law, is conduct that is so unreasonable as to justify indemnity costs.

(4)  Ultimately what the receiving party must demonstrate is something in the conduct of the action or other circumstances of the case that “takes it out of the norm” which warrants an order for indemnity costs.

Costs of the Amendment Application

5.Mr Man for Hui submits that indemnity costs should be ordered against SW in the Amendment Application for the following reasons:

(1)  The Amendment Application “is an extremely late application”.[3] It was only taken out in the course of trial after SW had opened its case. There is “no evidence explaining the delay”.[4] In other words, the delay is inexcusable. The Amendment Application took up much of the Court’s and Hui’s time and was highly disruptive.

(2)  The amendments proposed by SW are not technical and are not based on a common ground. They “would introduce a controversial issue” and “would cause irremediable prejudice to Hui”.[5]

(3)  The stance taken by SW simply reflects the casual attitude on SW’s part in how they prepare the case for trial. That is unreasonable. To mark the Court’s disapproval of such an attitude in the preparation for a trial, indemnity costs order is warranted.[6]

6.Ms Tong for SW submits that indemnity costs should not be ordered for the following reasons:

(1)  Given Hui’s own position in his pleadings and witness statements that (a) he had never seen the Draft Conflict Memorandum and (b) he never made any disclosure of his conflict to the Chime Board directly, it was not unreasonable for SW to have taken the view that the proposed amendments would merely reflect the undisputed correct factual position. While this Court has found that the amendments would introduce a controversial issue, the view taken by SW when making the Amendment Application cannot be criticised as being so unreasonable as to justify indemnity costs.

(2)  As regards the lateness of the application, for the reasons in the above, SW had all along taken the view (which should not be regarded as wholly unreasonable) that it was common ground that the Draft Conflict Memorandum was not sent, no disclosure was made by Hui directly to the Chime Board on 16 December 2009. It was only in Hui’s Written Opening Submissions (filed 7 days before the commencement of trial) that Hui sought for the first time to rely on the subject pleas[7] in support of his case and argued for the first time that Parker’s knowledge on his verbal disclosure should be attributed to Chime Board. Whilst Hui relied on this newly raised “attribution” point to argue that the Amendment Application would introduce a controversial issue (ie whether Hui made disclosure of his TAGZ directorship to the Chime Directors), SW could not have anticipated such a line of argument prior to trial.

(3)  The Amendment Application did not take up much time and was not “highly disruptive” as submitted by Hui. Submissions on the Amendment Application took around 2.5 hours in the context of a 11-day trial.

7.I am in respectful agreement with Mr Man.

(1)  As held in §§135 and 136 of the Judgment, Hui did plead the attribution point in his Amended Defence and relied on his disclosure to Parker throughout. The attribution point is not something new suddenly raised by Hui shortly before the trial.

(2)  The Amendment Application (which was made after SW finishing its opening submissions) is indeed highly disruptive. The Court and Hui’s legal representatives, instead of focusing on the legal and factual issues in the trial, would need to divert their attention and spend time and efforts on the Amendment Application in the middle of the trial. As held by the Court of Appeal in Li Xiao Yun v China Gas Holdings Limited[8],

last-minute pre-trial applications are to be discouraged, and unless there are good justifications, the unsuccessful applicant should normally be expected to face an order for indemnity costs. In my view, the Amendment Application, which is not a last-minute pre-trial interlocutory application but is an interlocutory application made during the trial, is more problematic. In view of my findings made in §101 of the Judgment, there is no reason why indemnity costs should not be ordered against SW.

Costs of these proceedings

8.As to the costs of the entirety of these proceedings, Mr Man submits that indemnity costs should be warranted:

(1)  SW consciously, unfairly and misleadingly concealed the existence of the Deacons Advice. The existence of the Deacons Advice was never volunteered by SW. But for the questions asked during the cross-examination of Jong prompting its revelation, the existence of the Deacons Advice would have remained concealed. Hui has been prejudiced by SW’s conscious concealment of the existence of the Deacons Advice and the concealment is unfair to Hui.[9] Conduct of this kind should be disapproved by the Court.

(2)  Without any cogent evidence in support, at the 11^th hour, SW ambushed Hui with an unpleaded case of deliberate wrongdoing.[10] Without any cogent evidence in support, SW should not have challenged Hui’s honesty and integrity. A party’s irresponsible behaviour of making very serious allegations against professional men without any factual basis is a basis warranting indemnity costs.[11]

(3)  SW’s claims were in any event hopeless to begin with.

9.Ms Tong submits that indemnity costs should not be ordered:

(1)  SW’s claims were reasonably arguable and not hopeless.

(2)  SW’s decision to commence and pursue these proceedings was made after extensive investigation spanning several years (which uncovered significant red flags concerning Hui’s handling of the Foshan Transaction) and careful consideration. There is no basis for Hui to contend that P “irresponsibly” pursued a case of deliberate wrongdoing against Hui without any cogent evidence in support. Rather, the contemporaneous documentary evidence does provide prima facie objective evidence for an inference to be drawn as to (a) Hui’s concealment of his directorship in TAGZ; (b) his actual interests in the Garden Project, the Zhaoqing Project and the Foshan Project; and (c) his preference for TAGZ/Fong’s interests, albeit this Court rejected such claims based on the acceptance of the Hui’s oral testimony at trial. It could not be said that SW pursued its claims unreasonably when the reason why the matter was decided against SW turned on the credibility of witnesses and viva voce evidence at trial. SW is entitled to test Hui’s credibility at the trial. Whilst this Court ruled that these allegations were not adequately pleaded[12], Hui had notice of the factual basis of these allegations through Jong’s 2^nd Supplemental Witness Statement and discovery provided prior to trial, and addressed the same in his own witness statements. Hence, it is not the case that these matters were raised only for the first time at trial.

(3)  As to the non-disclosure of the existence of the Deacons Advice, SW did not disclose the Deacons Advice at an earlier stage in the proceedings because SW took the view that the Deacons Advice was a privileged document. Even if SW was mistaken as to the extent of its discovery obligations, the existence and date of the Deacons Advice was disclosed by Jong during his cross-examination at trial. It is relevant to take into account the fact that the Court has already drawn adverse inference against SW for the non-disclosure of the date/existence of the Deacons Advice.[13] In the circumstances, any prejudice caused to Hui by the non-disclosure has already been mitigated and there cannot be any further legitimate basis to warrant a departure from the usual basis of costs.[14]

10.In my judgment, in the circumstances of this case, indemnity costs for the entirety of these proceedings are justified.

(1)  With respect, the case put forward by SW in the trial is indeed bound to fail.

(a)  SW has withdrawn its claim based upon shadow directorship at the beginning of the trial.

(b)  As to SW’s claim based upon de facto directorship, I have ruled that SW has not pleaded a cause of action based upon de facto directorship.[15] Further, the de facto directorship claim is also not supported by the evidence.[16]

(c)  As to SW’s claim based upon de jure directorship, I have ruled that SW has not pleaded a case by relying upon the Forfeiture Clause.[17] Further, the de jure directorship claim does not have any evidential basis.[18]

(d)  As a result of the aforesaid, SW’s case is bound to fail.

(e)  With the benefit of being legally represented in these proceedings at all times, SW ought to know that its case against Hui is a case bound to fail. Yet SW chose to put such a case at the trial.

(2)  It is trite that issues are defined by the pleadings and not by the evidence. It is also trite that serious allegations of fraud and dishonesty, or inferences of serious misconduct, are not to be lightly made and must be supported by cogent evidence. It is no answer that the plaintiff at the initial stage of the proceedings did not have the full picture.[19] SW cannot put forward serious unpleaded allegations and wait and see whether Hui could explain away these allegations at the trial. Conducting litigation in this way is unreasonable. Further, (a) JL, Jong and Mr Christopher Chan all appreciated the value and attractiveness of the Foshan Site[20] and (b) Jong admitted that regarding the value of the Foshan Site, in December 2009, the price of RMB 4,000/m square could be a genuine view[21]. With all these in mind, pursuing a case of deliberate wrongdoing against Hui is unreasonable to a high degree.

(3)  The conscious and deliberate concealment of the existence and the date of the Deacons Advice is a serious matter. Unlike the Airtrust case cited by Ms Tong, the conscious and deliberate concealment in this case is done by officers appointed by this Court, with an aim to suppress the truth to advance the interest of the Group.[22] To show the Court’s disapproval of conduct of this kind, apart from the adverse inference drawn against SW, I am of the view that indemnity costs should also be ordered.

11.The parties have also made submissions concerning the alternative application in Hui’s Summons. Having reached the conclusion as set out in the above, it would not be necessary for me to deal with the alternative application.

Disposition

12.I allow Hui’s application. Both the costs order nisi concerning the Amendment Application and the costs order nisi concerning the entirety of these proceedings be varied to the extent that all the costs provided in these costs orders are to be taxed on an indemnity basis.

13.As to the costs of this application, costs should follow the event. The consideration of the submissions on costs should be regarded as part of the trial. I order that costs of Hui’s Summons be to Hui forthwith, and those costs be summarily assessed on an indemnity basis. In Hui’s Statement of Costs, as to counsel fees, Hui only claims the fees of two counsel. I grant a certificate for two counsel. Having considered Hui’s Statement of Costs and SW’s List of Objections, bearing in mind that costs are assessed on an indemnity basis, I allow the costs claimed by Hui in full. Costs of Hui’s Summons payable by SW to Hui be summarily assessed at HK$576,824.00.

14.Lastly, it remains for me to say that the helpful assistance rendered by all counsel in this application is appreciated.

Ms Sara Tong SC leading Ms Esther Mak and Mr Eugene Kwan, instructed by Gibson, Dunn & Crutcher, for the Plaintiff

Mr Bernard Man SC leading Mr Vincent Chen and Mr Ian Yu, instructed by Lam & Co., for the Defendant